Monday, June 14, 2010

US Consumer Debt : Income 50 cents, expenditure 65 cents

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Since June 2008, the US household debt mountain has shown the seventh consecutive quarterly drop. This should be heartening. However it is not so for two reasons:

The figure is down by a minuscule US$0.37 trillion, out of the US$ 13.9 trillion -- just 2.66% deleveraging in nearly two years. Not fast enough, when you consider that the bigger figure represents 131% of personal disposable incomes. Aamdani atthanni, kharcha 65 paise (Hindi proverb that translates into the second part of the headline of this blog entry) is the condition of the entire US population!

Most of this reduction has been achieved by banks writing off mortgage and credit card defaults. If one adds back to the debt figure the amount of write-offs, the bad news is that US household debt has actually gone up slightly, by only US$ 186 Billion! No sign of de-leveraging. The spendthrift habits of two generations are obviously refusing to die away.

In the meanwhile, Government (Federal) debt has swollen from US$$5.16 trillion to US$ 8.16 trillion. So now, the Government has joined the excessive leveraging game. Not good either, for anyone. A healthy US economy is good for all, but today the US economy's condition is pink -- the pink of high fever, not the pink of good health.
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Economy based on Savings or Spending.. will always remain a debate.Japan after it's initial success nosedived and the problem with it is Savings.US after all its Spending, still rules.. (they have managed the Politics well)India is now seeing growth due to change in its Saving habits...

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About The Author

is primarily occupied as a knowledge management consultant. Has research interests in Intellectual Property Rights — he is also currently pursuing two prestigious projects, one of which is funded by the Institute of Chartered Accountants of India.
Mr. Haldipur is a qualified CA and have taught Finance for a long time. He also has a keen interest in technology and is a keen observer of world politics, which explains the several entries on these topics in this blog. This blog records matters which Mr Haldipur feels are of interest or note.